The seller of the bond is actually not the city, but an entity called Sales Tax Securitization Corporation, into which Chicago transferred ownership of the future sales tax money. About two-thirds of the new bonds sold were securitized. In the business, they are called a securitized bonds. We’ve called it a sale of body parts, and we’ve been warning about its dangers since the idea first surfaced in the state legislature. To ensure that investors are paid ahead of others, even in bankruptcy, the city again relied on conveyance of full ownership of certain assets – its share of future sales tax revenue that flows to it from the state.Ī Bloomberg article called that approach alchemy turning junk into gold. Why did investors like the deal so much? Largely for reasons that should frighten everybody else. The new bond offering, however, was more popular with investors than expected so the city was also able to pocket some additional money for use next year, according to The Bond Buyer, though the amount is unclear. It won’t be replicated next year, when some other source must be found. Forty percent of the plan to fill that hole relies on on-time measures which include that $210 million of cash up front from the refinancing. The city faces an $838 million budget gap this year. That’s what Chicago did in its refinancing. However, instead of taking the savings over time in the form of lower payments, you’re able to get your lender to give you those savings in cash up front, which you quickly blow on current bills. Imagine refinancing your mortgage to get a lower rate. Bond buyers liked it, but should service recipients and taxpayers? So it was for $1.5 billion of new bonds issued by the city last week. They also do things they don’t do on Main Street, and for good reason. In Chicago, “they do things they don’t do on Broadway,” goes that Frank Sinatra song, My Kind of Town.
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